23 June 2015 – What started out as a speech by then Secretary-General Kofi Annan to the World Economic Forum in the late 1990s is today the world’s largest voluntary corporate sustainability initiative. The United Nations Global Compact calls on companies to align strategies and operations with universal principles on human rights, labour, environment and anti-corruption, and take actions that advance societal goals.
Leading this effort since the Compact’s inception in 2000 has been Georg Kell, a German national who was a key architect of the initiative. Mr. Kell, a former research fellow and financial analyst, also oversaw the launch of the Global Compact’s sister initiatives on investment and business education, the Principles for Responsible Investment (PRI) and the Principles for Responsible Management Education (PRME). As the Global Compact celebrates its 15th anniversary this month, Mr. Kell spoke with the UN News Centre about how it all started, why being socially responsible is good for business, and why it is more important than ever to convince those still “sitting on the fence” when it comes to environmental, social and governance issues.
The majority of companies are still sitting on the fence, pretending shareholder values are all they are concerned about...
UN News Centre: You’ve led the Global Compact since its founding in 2000. Can you tell us briefly how it all started?
Georg Kell: The idea came in the late 90s when my former friend and colleague and boss, John Ruggie, said ‘look we must come up with a really great speech. Otherwise, Kofi Annan, then Secretary-General, will not go to the World Economic Forum. Can you do a really great speech?’ So, it was a speech called ‘The Global Compact’ and it called on business, in an era of globalization, to take on more responsibility, not just to look for profit but also to build social, environmental and governance pillars. We looked at what can the UN offer? Where is business under pressure? Where can we actually move things forward? The UN has for decades produced great stuff on human rights, on social issues, on environmental issues. So we looked for principles derived from international frameworks that in theory have long been endorsed by governments but which in practice are lagging in terms of implementation.
So we came up with 10 principles derived from the Universal Declaration of Human Rights, the Fundamental Principles and Rights at Work [International Labour Organization], the Rio Declaration on Environment, and then later on the UN Convention Against Corruption. So the idea was very simple... embrace the principles, make them part of your own strategic orientation and translate them into operations. And, where you can, take action to support UN goals, enter into partnerships, initiatives and so forth. So it was just a speech... we made the front pages of all the international papers... and we thought ‘job done,’ it was just a policy speech, let’s move on to the next one.
But the reaction to the speech was so overwhelming that we felt compelled to actually try to translate this lofty speech into an operational initiative, and that’s where the real journey started... It was what academics call ‘a classic speech act’ – intended as a speech, but then due to popular demand, gradually it led into an enormous building effort.
UN News Centre: Are the United Nations and the business community a natural fit in promoting human rights, tackling corruption and protecting the environment?
Georg Kell: If business is ethically oriented, then the answer is yes... In practice, business can choose... business can do a lot of harm... business can pollute rivers... they can burn down forests... they can seduce customers... they can sell pornography... trafficking in children, in the worst case... or they can be based on sound ethical frameworks and recognize that they can only grow if the societies where they’re working also succeed. So our job has been to win over companies that going global does not just mean having more short-term profits and looking for the cheapest allocation or sourcing capabilities. But rather to understand that for markets to grow, and for your own future prospects to be successful, it makes sense to integrate, in your strategic thinking and operations, environmental, social and governance issues. So this has been the big battle around the narrative on corporate sustainability, corporate responsibility.
And today, I can say that it is a global movement. We have 8,400 active corporate participants from over 150 countries, with 4,000 non-for-profit organizations engaged as well – be it business schools, academia, civil society, local authorities, and so forth. And we have 90 country networks up and running. Some of these country networks are really big forces in their own right already... They convene; they organize; they form partnerships; they grow and scale successful solutions. So it’s a big movement now but I have to say it’s not yet transformative because the majority of companies are still sitting on the fence, pretending shareholder values are all they are concerned about, ‘that profit is the only imperative we have, that the rest is not our responsibility.’ So we still have to win over many companies which are still sitting on the fence. But for the first time in our 15-year history, we can see a tipping point is possible.
So if we keep growing the initiative worldwide, both large and small companies, we can change markets from within. Actually, I believe that already a silent revolution is taking place because these 8,000+ companies employ more than 50 million workers, and have a huge footprint. What these companies do and how they have changed what they’re doing already had a huge impact. We will issue next week a ground-breaking review and assessment, which will document the changes already being brought about by this movement... And the figures are really astonishing, whether it is hundreds of millions of [tonnes of] water saved; hundreds of millions of tonnes of CO2 reductions accomplished; hundreds of projects taking place at the community level to create employment... so the footprint is enormous. The scalability is enormous but the movement has not yet reached a tipping point.
UN News Centre: What does corporate responsibility look like in practical terms?
The 10 Principles of the Global Compact:
- Human Rights
- Businesses should support and respect the protection of internationally proclaimed human rights; and
- make sure that they are not complicit in human rights abuses.
- Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;
- the elimination of all forms of forced and compulsory labour;
- the effective abolition of child labour; and
- the elimination of discrimination in respect of employment and occupation.
- Businesses should support a precautionary approach to environmental challenges;
- undertake initiatives to promote greater environmental responsibility; and
- encourage the development and diffusion of environmentally friendly technologies.
- Businesses should work against corruption in all its forms, including extortion and bribery.
Georg Kell: It means that the CEO and the top leadership understand that long-term financial success goes [hand] in hand with environmental stewardship, social responsibility and good governance. Failure on any of these three non-financial pillars means long-term financial success cannot be safeguarded. From the beginning, we have aimed at transforming business, recognizing that the most important contribution business is making to development and the UN agenda is how business conducts itself.
We know of many companies which more recently have integrated this thinking at the board level, where the CEOs recognize the importance of what economists call non-traditional financial issues – ESG – environmental, social, governance. This then shows throughout the organization... it means there’s good ethics; there’s empowerment of people; there’s transparency, disclosure on an annual basis, including on non-financial issues, as we demand from our participants. Failure to do so leads to de-listing. Already we had to delist 5,000 companies. It also means that companies proactively look for opportunities on the ground to include poor people, to grow markets, to engage in partnerships on the ground on water stewardship, to enter into larger-scale efforts on vocational training, for example, to promote women’s empowerment at the workplace, in the community and so forth. And in some of our global efforts where we are directly linked with climate negotiations, for example, or the upcoming SDGs [sustainable de velopment goals], we go a step further even...
So responsible business statesmanship today means you can connect the dots; you know your own future financial success depends on the success of the market where you invest and therefore you recognize the opportunities in being part of the solution rather than part of the problem. And this in operational terms then means total alignment with the Global Compact’s principles within the organization and engagement through partnerships and collaboration around priority issues.
UN News Centre: How is being socially responsible good for business?
Georg Kell: A fundamental shift is taking place in the marketplace, and this is where globalization is actually helping us to make the business case. What used to be external to the firm now matters financially. If companies mess up... say on corruption... or if they are caught in polluting rivers or the ocean, it not only causes enormous damage to their brand... it is also detrimental to employees’ motivation and, in general terms, undermines long-term business prospects. What has changed in the world is, because of digital empowerment of people, because of global integration, non-financial issues become material for long-term financial performance.
I give you four reasons why that is so. The final judgement is still out but the evidence is getting stronger and stronger. First, transparency. For companies, it no longer makes sense to hide anything. With digital empowerment of people worldwide, the right thing to do is to name problems for what they are and to see whether you can be part of the solution. Don’t hide dark things, not even deep down in the supply chain. It will come out; it will lead to consumer boycotts; it will damage the brand; it will undermine the trust-based relationship and so forth.
Secondly, foreign direct investment – the main vehicle through which business goes global – has undergone a paradigm shift. Only 10 years ago, it was still largely about having access to cheap resources, be it in the form of low labour costs or material input or extracting natural resources. Today, most foreign direct investment is about building markets... Why? Because economic growth has migrated away from the traditional centres from 20 years ago to the East and to the South. Business is increasingly making long-term investments. They want to grow with the market. And once you want to grow with the market over time, you become a stakeholder in society and you have an incentive to overcome barriers to growth... say a shortage of skilled people. You have an incentive to invest in vocational training because you want to grow over time. If there are high systemic corruption costs and risks, you have an incentive to engage in collective action to improve public procurement to reduce transaction costs which ar e risks to your brand, and a cost to the operation. If there is extreme discrimination of ethnic groups or on the basis of gender, you have an incentive to overcome that as a global citizen because you know that inclusiveness and diversity are the source of innovation... so the whole rationale for engagement has changed, thanks to the migration of economic growth, thanks to the rise of transparency which is irreversible like technological change itself.
Corruption is the biggest cancer in the world, and it’s everywhere…it enriches those who are already rich and it’s always at the expense of the disadvantaged.
The third reason is natural resource scarcity and the blurring line between what is public and what is private. Twenty years ago, for business, it was enough to have just one good relationship with one government, where they were headquartered. This government would give them protection, a license to operate, and they could manage the regulatory interface. Today, as business has gone global or is connected through the value chain, this doesn’t work anymore. Today, what used to be strictly public has a private character and vice versa... so for all these reasons, what used to be external to the firm now has material relevance for the firm itself and there’s a real incentive to find solutions on these issues.
The bottom line is if you want to be successful in the long term, you can no longer avoid this agenda. Environmental, social and governance issues matter. They matter not only in a public goods sense but increasingly they also matter in a material sense. We call this internally, the moral imperative...
UN News Centre: The Global Compact is the largest voluntary corporate responsibility initiative in the world, now having over 12,000 participants. Which companies really stand out in terms of their efforts in this area?
Georg Kell: Companies stand out that are most globally integrated. The more a company is integrated, on average, the better its performance. That, I think, is generally true. That can be a small company. Often it’s the privately-owned companies which are not so well known by their global brand. I know so many heroes from Pakistan to Argentina who are working under the most challenging environments – be it security, corruption – and yet have a total dedication for long-term success. Or there are global brands, some of them very well known, who understand that the future can only be safeguarded if they act as corporate business statesmen and they’re part of the solution.
UN News Centre: This month the Compact is celebrating its 15th anniversary. What have been some of its greatest achievements over the years?
Georg Kell: Next week, we will take stock and look into the future. A major study will be released – Impact: Transforming Business, Changing the World – it’s based on months of work to assess the change that the Global Compact has produced. I don’t want to pre-empt it now but I just want to say that the biggest impact we had is changing mind sets on a truly global scale, not just in one country or in one sector but virtually across the globe where many, many companies now are aligned with the UN. They’re aligned with universal principles and they are on a journey of understanding that long-term success and alignment and support with UN goals goes hand in hand...
Georg Kell: For two years now, we have mobilized our country networks to identify priorities and we’re very excited that many of our networks see in the SDGs an opportunity to accelerate and scale up collaboration. So it’s a natural fit. The Compact, from the beginning, had two strategic goals – first, to internalize universal principles... and second, to take action. The SDGs are a wonderful opportunity to accelerate what we call the second goal, the collaboration – business to business, business with civil society, business with governments. We have a number of important products in the pipeline which we’ll unveil in September...
I’m personally excited in particular about the goals in the SDGs which speak to the issue of governance, including corruption, because it’s arguably a priority issue and many of our networks around the world identify anti-corruption as priority number one... Corruption is the biggest cancer in the world, and it’s everywhere... Over $1 trillion gets lost just in emerging markets every year...The damage that is done is really heart-breaking. It undermines entrepreneurship; it undermines performance; it enriches those who are already rich; and it’s always at the expense of the disadvantaged.
UN News Centre: What is the most important lesson you’ve learned over the past 15 years?
Georg Kell: Number one: the enemy is us. Change is within us. All human beings have an enormous potential to do enormous good but also enormous bad. Ethics – knowing what’s right and wrong, fairness and justice – must be the basis of everything... Number two: what connects us is much stronger than what divides us. The world is so interconnected now that we have to build on what connects us. People everywhere have the same aspirations. People everywhere have the same desires, irrespective of culture or language...
Thirdly, I think we have to understand the past in order to see the future. In many parts of the world where conflicts are just under the carpet, it is usually associated with grievances of the past because there are different interpretations about history and these prejudices then live on; they live on and they can erupt easily. So even if it’s painful, I think people should reflect and talk about the past. Only when you clear the past and you can stand in front of it, can you see the future with clarity. Otherwise, your vision for the future is blurred.
I also believe the strongest power humanity has is idea power. Ideas can be used to enflame hatred and violence; ideas can be used to build peace and prosperity... It’s soft power, but it’s an enormously strong power. It’s stronger than anything else. It can defeat armies. It shapes human behaviour. It shapes our mind sets. So it’s a privilege, I would argue, working for an idea-based Organization. It’s an enormous privilege to see also how corporate sustainability based on United Nations values and principles is gaining momentum, how it is becoming a force of transformation within. And this agenda is irreversible, provided the world stays peaceful at large and is committed to openness. It’s a critical year, and with the SDGs in the making and the Paris climate talks, hopefully we can support rebuilding a shared understanding of humanity’s course for the future.
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